Price action very choppy
Another week of choppy action for the wheat complex, but by the close on Friday, there was more strength than weakness. The bulls were encouraged by strong export sales, declining crop conditions as the crop heads into dormancy and the improving technical picture.
The bears argue that we're still well behind the pace needed to achieve USDA's export projection, increasing plantings around the world, and record fund length in corn that could see some liquidation (and thereby pressuring wheat) before the holiday season.
On the export front, the bulls definitely got a breath of fresh air as export sales of 547,000 MT were well above trade estimates. Egypt also purchased 60,000 MT of US wheat last week along with 120,000 MT of French; just as important as our sale was that the Black Sea was absent from the sale. Another tender by Egypt has us all watching closely to see if the Black Sea is absent again- if so, it could suggest that they're out of wheat for this marketing year.
Still, the bears will argue that we've a long way to go to catch up with exports as we are 10% behind the pace needed to reach USDA's projections. The key continues to be the basis, which is the barometer of the cash market; and it's the cash market that will have to lead in order to retest those contract highs and any potential for further rallies. Export basis levels have improved somewhat in the Gulf, but not enough to make wheat stand up and move higher on its own.
The last crop condition rating of the year showed another decline in the good/excellent rating at 4% nationwide with Kansas down 4 points as well. Warmer than normal temps with drying soil conditions were the main factors in the decline, but by the end of last week, the temps were well below normal accompanied by winds, snow and ice. The crop likely received no damage as the snow and ice provided insulation against the cold.
Deliveries have been relatively heavy for Chicago, keeping the pressure on that market even as the other two markets managed to gain on the week. We should be able to move past the delivery pressure soon as the dates became current quickly.
As we enter the holiday season, markets typically will slow down in action and volume. The fear is that the funds will focus on liquidating some of their record length in corn before year's end, which could really create some pressure there, not to mention spillover weakness for wheat. Corn's extended uptrend has seen little time correcting; a slowdown in momentum could lead to an extended sell-off/correction in all the grains.
A quick look around the world shows India plantings up about 10% and into good conditions. After a poor crop this year and the first imports in several years, they are on their way to self-sufficiency again. China received some needed rain in the dry regions of wheat country, but most of their wheat is irrigated anyway. Argentina's harvest continues with good weather, and they are well above 25% complete.